Fed’s Record-Breaking Profit

The Federal Reserve is breaking all kinds of records these days. Its balance sheet has swelled to more than $2.9 trillion and will reach new highs in 2013 as the Fed purchases $85 billion a month in Treasury and mortgage-backed bonds.

The growth of its holdings in turn is causing the central bank to remit record amounts to the U.S. Treasury. On Thursday, the Fed said it sent $89 billion back to the government in 2012, the highest ever. It’s a strangely circular arrangement: the government pays the Fed interest and the Fed pays it back to the government.

Of course, the current record isn’t likely to last long. The Fed’s balance sheet could swell to nearly $4 trillion by the end of this year. If the Fed generates a return similar to that of 2012, next year’s payout could easily top $100 billion.

These are eye-popping returns when compared to private sector banks or hedge funds.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.